(Editorial) On interest rate, CBN is wrong

So far Nigeria’s principal banking regulatory body, the Central Bank of Nigeria (CBN) has done a fair job of maintaining financial stability. Broad economic indices have headed in the right direction since the beginning of the year. At the height of economic recession, for example, the country’s gross domestic product growth fell -0.7 per cent in the first quarter of 2016 to -2.3 per cent at the third quarter and ended the year at -1.7 per cent. The economy’s negative growth continued into the first quarter of 2017 when GDP grew at -0.5 per cent, but this ended the blues as the second quarter of the year saw a revised annualized quarterly growth rate of 0.72 per cent. A recent Statistics Bureau (NBS) report puts third quarter GDP growth at 1.4 per cent, should we do a song and a dance? Certainly not. Although the economy has shown signs of recovery, most of that has been attributed to God, good fortune, a rise in international oil prices or a combination of all three, but not policy. Indeed the CBN’s high interest rate environment has left Nigerian corporations hanging on the last thread of their lives, as their workers get pink slips terminating their jobs like wedding bands being showered with confetti.

The CBN of course justifies the high interest rate regime by pointing out that it has resulted in stabilizing the foreign exchange market at N360/$ while also dragging inflation by its coattail from a lofty 18.72 in January 2017 to 15.91 per cent in October. The bank’s Governor at a recent interactive meeting with stakeholders assured that the CBN was on course to bring inflation down to single digits by the second half of 2018. This is dangerous. What the governor seems to be suggesting is that interest rates are likely to remain at double digits for at least another eight months. This could have dire consequences for growth, employment and the electability of the APC government in 2019. It is instructive to note that while Emefiele cooed glowingly about the success of the regulator in calming consumer price increases he remained deliberately (and some would say cynically) silent about the growing levels and rates of domestic unemployment. With the country graduating over one million students from tertiary institutions annually and the economy growing at less than one per cent per annum on an annualized quarterly basis the future is bleaker than the picture painted by the CBN boss.

Nigerian businesses are dying and the banks, despite their flowery financials, are in dire straits. High interest rate environments are by definition high risk environments. The high cost of money reflects a high probability of default, therefore when banks lend many of them have reverted to what behavioural economists call a ‘default mode’. A turn of thinking in which it is presupposed that the loans granted will not be repaid. The cost of lending builds into this bias and therefore creates a self-fulfilling prophesy in line with Sod’s law that whatever can go wrong actually does turn out badly. Nigeria cannot hope to grow in a sustainable manner if private businesses are denied access to capital or are permitted access at prohibitive rates. No nation has been able to grow a robust economy with double digit lending rates. The lower interest rates are and the easier the access private entrepreneurs have to capital or credit the faster the growth of industry and commerce and the lower unemployment of labour.

Business Hallmark newspaper believes unrepentantly in the workings of competitive markets and supports the principle of asset and resource allocation on the basis of relative scarcity but this newspaper cannot reconcile itself to the deliberate policy of the CBN to keep inflation low by keeping interest rates high, especially in an economy with excess labour capacity and high domestic inventories. The late economics Professor Milton Friedman’s argument that inflation is always and everywhere a monetary phenomenon has since become standard textbook theory, but in the short term with excess production capacity the Friedman equation that relates money supply to price is inapplicable because at low base industrial production output with major excess capacity the impact of monetary expansion would first be felt on production and not price. Friedman’s argument becomes more persuasive the closer the economy is to full employment in the medium to long term, a far cry from Nigeria’s current situation.

We therefore, urge the policy wonks at the CBN to reduce the monetary policy rate (MPR) by at least 200 basis points or 2 per cent, they should bring down MPR from 14 per cent to 12 per cent per annum, as cash reserve ratio is reduced from 30 per cent to 25 per cent thereby allowing greater credit expansion and a gradual fall in bank lending rate to support industrial and commercial growth. With a population growth rate sprinting ahead at a threatening 3 per annum and GDP shuffling along at less than 2 per cent (actually 1.4 per cent as at the last quarter), GDP per capita has gradually fallen as consumer spending wanes and manufacturing output sputters to a deathly stall. While nobody doubts the good intentions of the CBN, Nigerian’s must, however, insist that they will not be crucified on the cross of the monetary authority’s morbid fear of price increases, just as only the living can enjoy the breaking of the dawn only the physically present can take pleasure in lower price levels. Dead men do not care about inflation.

Recent posts

Second Republic lawmaker, Dr Junaid Mohammed has noted that President Muhammadu Buhari has performed poorly in office and it would be irrational for Nigerians to vote for him in 2019. Dr Mohammed who made the assertion in an interview with Vanguard on Saturday, also criticized Buhari for being a poor reader who according to him, […]

Former President Olusegun Obasanjo continued his visit to Bayelsa State after inaugurating some projects of the state government on Friday. The former president continued his tour of the state on Saturday with the laying of the foundation for the establishment of Azikel Refinery. The refinery is owned by Dr Eruani Godbless, a prominent businessman and […]

Quite notice, hate speeches and President Buhari’s Northenisation/Islamisation agenda by Professor Ben Nwabueze NATURE OF HATE SPEECHES In the aftermath of the divisions in the country caused by President Buhari’s Northernisation/Islamisation Agenda, as manifested in his lopsided strategic appointments that unfairly favour the North as against the South, and the complete exclusion of the South-East […]

OBINNA EZUGWU Veteran columnist and elder statesman, Chief Adetola Adeniyi has warned former Lagos governor, Senator Bola Ahmed Tinubu against supporting President Muhammadu Buhari’s second term bid, as according to him, such could mark the beginning of the end of his influence in Yoruba land. Chief Adeniyi who led the Global Intelligentsia for Buhari, a […]

President Muhammadu Buhari has strongly condemned Thursday’s massacre of innocent persons in Birane village, Zurmi Local Government Area of Zamfara State. The President stated this in a statement issued on Friday by his Senior Special Assistant on Media and Publicity, Mr Garba Shehu, following the death of at least 18 persons as a result of […]

Former President Olusegun Obasanjo on Friday visited former President Goodluck Jonathan at his home in Bayelsa State. Dr Jonathan welcomed the elder statesman who was in his home for a private dinner, in company with his wife, Patience. Earlier before the visit, former President Obasanjo inaugurated a government specialist hospital in the state and unveiled […]

The Nigerian National Petroleum Corporation (NNPC) said it supplied a total of 29.058 million litres of Premium Motor Spirit (PMS) popularly known as petrol to thirteen Northern states in three days. In its report on daily dispatch to filling stations made available to the News Agency of Nigeria (NAN) in Abuja on Friday, it named […]

An area in which different levels of governments in Nigeria have remained loudly silent and painfully indifferent is childhood disability. Children with disabilities and their parents have over the years ridden on waves of disillusion, despair, and decay. They constitute a tribe of the silent minority that the society has conveniently allowed to disappear into […]

The Infrastructure Concession Regulatory Commission (ICRC) has said that Nigerian ports were now witnessing more efficiency following the reforms of the Fedearl Government. Mr Chidi Izuwah, Acting Director-General of the commission said this during an inspection tour of facilities of the Nigeria Port Authority (NPA) in Rivers state. The acting DG said that the policy […]

World Bank has approved a 486 million dollars credit facility to Nigeria for electricity grid improvements, the lender said on Friday. “The investments under the Nigeria Electricity Transmission Project will increase the power transfer capacity of the transmission network and enable distribution companies to supply consumers with additional power,” the World Bank said. Nigeria’s power […]

The Nigerian Army has announced a cash reward of N3million for information on Boko Haram leader Abubakar Shekau. “The Nigerian Army will give out Three Million Naira (N3,000,000.00) cash reward for any credible information that leads to the arrest of Abubakar Shekau, the fugitive factional Boko Haram terrorists’ group leader,” a statement by the Director, […]

Hailemariam Desalegn, A day after President Jacob Zuma resigned as South African President, Ethio­pian Prime Minister, Hailemariam Desalegn, Thursday announced his resignation in a televised broadcast amid political turmoil in Africa’s fastest-growing economy. The announcement came just after the government released hundreds of political prisoners, including some of the most prominent opposition members in the country, […]

South Africa prepared to welcome wealthy former businessman Cyril Ramaphosa as its new president Thursday after scandal-tainted Jacob Zuma resigned under intense pressure from his own party. Zuma announced he had stepped down in a late-night television address in which he took some digs at the African National Congress (ANC) party that had threatened to […]

Jacob Zuma has finally bowed to pressure and stepped down from office as South African President The embattled president made the announcement in a broadcast to the nation on Wednesday evening, noting that he has stepped down “with immediate effect.” Zuma has been under pressure to step aside following allegations of corruption. On Tuesday, he […]

The Department of Petroleum Resources (DPR), said it fined one oil marketing company, A.Y. Maikifi, based in Kano, the sum of N1.2 billion for diverting 115 truckloads of the products Mr. Mohammed Saidu, Head, Public Affairs Unit, DPR Abuja Zone, disclosed this in Abuja, on Wednesday while addressing newsmen. He said that about 162 truckloads […]